Examination of Witnesses (Questions 340
WEDNESDAY 22 MAY 2002
340. If you look at the Government's four aims,
the third is that all students should have access to sufficient
financial support throughout their years in higher education.
Barr argues that students can borrow anything they like for the
full costwhatever they wantto stop them working
too many hours in bars, or whatever they do. At the end, there
is a payment that is only triggered at a particular point in time
at a particular income level, which will change over the years.
They are saying that here is a rate of interest that is not at
the exorbitant levels of the credit card or commercial world,
or at some of the rates of interest that my poorer constituents
pay when they borrow from unscrupulous lenders; but here is a
level that is not a very high subsidy; indeed, it is a subsidy
to the people who most need it, not the people who least need
(Professor Floud) I am making a very simple point,
perhaps as a quasi economist.
341. You are a very distinguished economic historianyou
(Professor Floud) If you use public funds to provide
a lower than market rate of interest, that is itself a subsidy.
342. Is the idea not attractive to you that
you could release some £800 million because next year the
student loan company will lend £2.5 billion, and by putting
a small rate of interest, the Government lending rate, according
to the Barr proposals that will release £800 million? Surely,
you can sit down and work out some fantastic scheme for that in
terms of quality and access? You have more money. Under your proposals,
there will not be a whole lot of extra money for support, in terms
of universities being able to support students from poor backgrounds,
which we know costs a lot more money than students from traditional
backgrounds. This deals with both of those things. You are coming
up with objections that it is a subsidy and therefore the proposals
are contradictory, and it does not deal with debt-averse students.
You could come up with quite an attractive programme. I am suggesting
that your objections are fairly week. I would have thought that
you would be a bit more robust and have stronger arguments, or
you just do not want to look at it.
(Professor Floud) Of course we are not saying we do
not want to look at it. We are pointing out that it is perhaps
not as simple as the proposal suggests. One of the things that
economic history does teach you about is that government legislation
often produces unintended consequences, and all we are suggesting
is that in order to judge whether the scheme would be better than
the one we are proposing, you would have to design the subsidy
system that is implied. It is no good saying "you could give
£800 million in subsidies"; you have to design a system
and then see what the potential costs and benefits and hidden
attractions and disincentives would be before you could come up
with that. I agree that it is worthwhile thing to do, and we are
quite happy to continue looking at that in those terms. All I
am really saying is that it may not be as simple as you are suggesting.
343. From the people who have been giving us
evidence, a consensus seems to be emerging. Margaret Hodge seemed
to indicate last week that we may return to giving students from
poorer backgrounds a full and free grant, like we did in the mythical
age when I went to university. However, the majority of students
will need to pay more, perhaps through higher interest rates.
There seems to me to a problem with that. One is that those who
are paying tuition fees pay them while they are at university
and still studying, and they have not got any money. Those that
are paying loans, possibly with much higher interest rates in
the future, will start repaying those loans as soon as they begin
work, long before they reach average earnings, right at the start
of their career. I talked to some students this morning about
this. Why not switch completely to graduate tax, whereby you pay
a higher income tax as a graduate? It is totally related to your
ability to pay; you only pay it when you are earning, and the
well-paid lawyer or university vice-chancellor or Member of Parliament
pays more than the low-paid graduate.
(Professor Floud) The obvious difficulty about the
introduction of graduate tax is what you do in the transitional
period. I do not think anybody has really solved that particular
problem. What you are really suggesting, particularly when you
move towards 50 per cent participation, is that you simply add
it to income tax. That is the simplest way of doing it. However,
here you get into the realm of politics. You can design schemes
of this kind, but are they potentially politically acceptable,
or do they conflict with policies made by political parties at
general elections? I think one can design schemes, all of which
are variants on graduate tax and income tax, or something like
that. We will advise government, and it is for government to decide
how they raise the money and how much the public subsidy should
be. We will tell them what the consequences might be if the scheme
344. There are problems with graduate tax. Someone
might say that politically we should not increase the tax at all.
The other point is that the gap for a few years and the different
teams of experts will tell you it is four years or ten yearsbut
for a while there is a gap between money going into a more generous
student support system and the money starting to come back from
graduates starting to earn money. If you could do it economically
and politically, what would your observations be on whether a
graduate tax is a fairer and income-related way of students paying
back the cost of their higher education, and the benefits that
they get from it, as compared to fees and loans, which are paid
up-front, before they are earning money and before they even reach
(Professor Floud) I think that essentially we can
only give a personal opinion on that. My answer personally is
that I think that is a fairer and simpler system, but that is
not Universities UK's position. We have been dealing with the
current situation, constrained by all kinds of pledges and decisions
about how large the tuition fee should be and so on, and we are
trying to simplify the system in order to achieve the objectives
the government has set for higher education over the next eight
(Baroness Warwick of Undercliffe) If Universities
UK were to take a position on graduate tax, it would have to be
on the basis that resources for universities were not themselves
diminished as a result of that because of the extra cost to student
support. Our dilemma is that the needs of the universities, as
expressed in our submission to SR2002 in overall terms, are very
substantial indeed. We are conscious for the need to attract students
who have not previously thought that higher education was for
them, and that is cost-intensive. It is cost-intensive to ensure
that they receive the quality of education that we believe they
deserve. We do not want to see second-class education for second-class
students. All of these are resource questions for universities,
and it would be quite intolerable if we were to produce a solution
for student support that was at the expense of decent provision
while students are at university.
345. There might be people, looking at the submission
and profile of Universities UK, who say that that might have been
a bit timid. You are a trade association and have to keep 140
members happy. You, Professor Floud, said "in my personal
opinion". Can we get, not from Baroness Warwick but from
Professor Green and yourself, the difference between what you
believe, as heads of institutions that are at the cutting edge
of this whole problem of widening the participation, and what
the Universities UK position is?
(Professor Floud) It is a bit difficult to ask the
President of Universities UK
346. You just gave it. I am only asking you
because you offered the opinion.
(Professor Floud) Yes. As I saidI can talk
from a personal perspective at the moment, from London Guildhall
University, or as it will be from 1 August, London Metropolitan
University, which will certainly be at the cutting edge of widening
participation in London. The great difficulty we face in dealing
with, for example, the Bangladeshi population, the Turkish population
and the Somali population in London is the complexity of the current
schemes combined, in some cases with religious objections to debt
and in other cases just low income objections to debt. That is
why I personally would be in favour of a considerably more generous
grant scheme than we currently have at the moment, and that would
be a good public investment in the long run.
(Professor Green) I would agree with that. I can only
give a personal view of the extent to which my institution has
quite successfully widened participation and manages to retain
past students. As Baroness Warwick said, it would not make any
sense to move to what I regard as a much simpler system of graduate
tax, if the cost of so doing were to deprive the institutions
of the additional funds they needed to support students who report
in to the institution. That is the dilemma we face, and that is
why we may come over as being slightly timid; we have been trying
to work within the existing assumptions.
347. At the present time, 90 per cent of the
tuition fees are paid by the Government, so that is a huge subsidy,
a huge investment. Is there an area there that you would like
to see changed?
(Professor Green) I would have to distinguish between
my own personal view and the view of Universities UK.
348. Give us both.
(Professor Green) Our line is that there is no single
support for what I call differentiated tuition fees. We have worked
within the system
349. Top-up fees.
(Professor Green) That is the language that is used,
but I think it is more accurate to talk about differentiated tuition
fees because there is no reason why some institutions might want
to charge less rather than more. To argue about top-up sends a
particular kind of message, so I prefer to use "differentiation".
Universities UK has worked within the current system of assumptions,
and Government policy at the moment is that there should not be
any top-up or differentiation fees.
350. I think that was a commitment of the former
Secretary of State while he was Secretary of State. I have not
heard anything so strong and positive from the Government since
(Professor Green) Our proposals were on the basis
of current policy, so we have worked on the assumption that differentiated
fees are not available. There are some institutions within Universities
UK that would support differentiated fees, and they would put
forward an argument on that basis, in terms of differences in
their market position and the provision that they offer. There
are others within Universities UK who feel that in terms of a
fair and equitable higher education system, that would not be
appropriate. If we are successful in widening participation, you
would end up with a situation that those people could not afford
to pay high rates of fees and would be constrained in their choice
as to where they attended higher education.
351. Differentiated fees would hardly simplify
(Professor Green) Absolutely.
352. That is not exactly the argument that I
was trying to lead you into. Differentiated fees raise a very
important issue and one which, to my horror, and I think to some
people at the last session with Margaret Hodge was either ruled
in or out. There is a big issue there, but I am more interested
in what percentage of the totality of the fee the Government ought
to be paying. In other words, is there an argument for asking
those who can afford it to pay a higher percentage than a quarter,
on average, of the fee that they are contributing to a superb
quality of education in this country?
(Professor Green) The answer may be "yes".
It may be more helpful to think of the total cost of entry into
higher education, of which tuition fees is only a part. Part of
the difficulty we have all got ourselves into is the confusion
that there has been about the tuition fee and the debt associated
with that, and the total indebtedness in terms of entry into higher
education. As part of the package, if any new system were associated
with means-testing against the total cost of higher education,
including tuition fees, then the answer could be different. There
is no specific fee.
(Baroness Warwick of Undercliffe) The answer is, clearly,
that there is no reason why the students should not be paying
a greater proportion of tuition fee. We have not taken the position
of what proportion that should be. We argue that there is considerable
benefit to the student, and there is also benefit to the community
and to the country, and that therefore the Government should be
making a contribution. We have not chosen to draw a line on what
that proportion of contribution should be. We keep coming back
to the point that if one is looking at the amount of resource
that students have while they are at university or in higher education,
the issue of the tuition fee has been rolled up with the issue
of the cost of their maintenance. Trying to disentangle those
to get a fair look at what it is sensible for students to contribute
for their tuition has been quite problematic because the whole
argument has been about maintenance. I do not think that we would
quarrel at all with the proposition that students ought to be
paying a greater proportion of their tuition fee, but what that
proportion should be is a matter, obviously, for political debate;
but because it is caught up with the overall cost to the student
and the overall amount of debt, those of us who represent institutions
have been concerned not to add to that debt burden until we are
quite sure that it is not acting as a disincentive, because we
are aware that the Government's key target for higher education
is increasing participation among the lower socio-economic groups.
353. That is where it is a matter of perception,
is it not, because those are the very people who are not paying
any fee at all? I am very interested in this element, which if
we can get the perception right, does not affect those people
coming in, in increasing numbers I trust, from lower socio-economic
groups. It is the people who could afford it, who might be well
asked to pay more towards the actual fee of what they are getting.
The other group that we are not considering in the whole of this
is the 50 per cent who do not go to university; and they are paying
the tax, as they are working, in low income jobs perhaps, depending
what they are doing, towards the people who are getting this huge
subsidy from Government on the fee element. I think you are right
in saying that to disentangle this now is not easy, but I certainly
think we should do it. It would appear, on both counts, whether
it is differential funding or increasing the percentage of the
fee, that Universities UK has not got a universal united front.
354. What is wrong, given the problems you have
seen, which Professor Green articulated very succinctlyhere
is the next 10 per cent; it is going to be more difficultwith
you, wearing hobnail boots, going into Whitehall and saying to
Margaret Hodge, or more importantly the Treasury: "Here is
a deal: we will have grants for the poorest groups means-tested,
and we will have increased fees, again means-tested, so you have
a bigger income into higher education and you target you poorer
students"? Why is Universities UK not wearing hobnail boots
and suggesting that?
(Baroness Warwick of Undercliffe) That is exactly
what we have suggested, in the sense that the proposals we have
put to Government covered a range of options that they might consider
as part of this review. What we have not got is the political
steer that says that the resources will be made available, or
the shift in resources will occur, in order to deliver that. We
are awaiting that from the Government's review. We have put our
views into Government.
(Professor Floud) We have to constantly come back
to the fact that we believe that at the moment the entire higher
education system is significantly under-funded, and that the additionalthough
we certainly believe in the desirability of a move to 50 per centthe
addition of that extra target will make the system, unless there
is some change, so under-funded as to be completely non-viable.
That is our primary responsibility, to ensure that our institutions
are properly funded in order to do the job that society and students
want us to do. At the moment, we do not believe that we have an
adequate infrastructure; we do not believe we are able to pay
our staff sufficiently and we do not believe we have the books
and equipment that are required to deliver the system as it should
be delivered. We start with the assumption, and that is the basis
of our spending review submission, that there needs to be a very
substantial additional sum of money. I know that it may be seen
as a cop-out, but I do not think it is: the division of that cost
between different sources of funding, between public and private
funding, is essentially a political decision and a matter for
the Government. We will advise Government and work with Government.
We will try to forecast the consequences of any decision, but
it is a matter for them.
355. On the question of tuition fees, you said
earlier that you want to make sure that if there is an improved
deal for students, the universities do not lose out on funding.
Were the universities and the students the victims of a fairly
cynical contract in 1997, whereby the Government said they were
going to introduce tuition fees for students, which would mean
more money going into higher education, yet the amount of money
going to higher education per student fell in the next three or
(Professor Floud) We still have discussions with the
Funding council in England about this year's settlement. We accept
that the situation over the last four years has been approximate
stability in the funding per student, as compared with the previous
situation of very, very substantial falls in funding per student.
So the situation has got better; we simply believe that partly
because of the backlog and the consequences of that long-term
decline in funding, the current level of funding for both teaching
and researchand, unusually, that is the first time that
word has been mentioned todaythe totality of funding is
simply insufficient to properly provide for the system as it is
at the moment.
356. If student fees went up to £3,000,
what guarantee would you have? Would that be extra money into
the university, rather than Government just cutting the money
(Professor Floud) None at all, which is where I come
back to my point that it is a political decision. Since I do not
think anybody has suggested that you would have some kind of hypothecated
tax, then there could be no guarantee that such additional resources
would add to the totality of the resources that we have.
357. You have still got the problem that you
have to say to students, "because you are going to earn a
lot more in your future working life, you will therefore pay £2,000-£3,000
tuition fees, even though you are not paying a penny at the moment".
How do you square that circle?
(Professor Green) We have to distinguish between the
existing system and the students you want to bring in to higher
educationand it is important not to loose that point; and
the extent to which already we are on a low base, under-funded,
and have not got the ability to invest in the future. That is
particularly important because it costs more to support the kind
of student that we need to bring in, and so we have a concern
about how we are able to deliver that, if something is not done
about the general under-funding in higher education.
358. In response to Paul Holmes's question directly,
have you had more money or less money, or exactly the same money,
(Professor Green) I have had less. It depends, as
ever with statistics, on how the information is presented; but
in terms of the increasing amounts of funding that I have had
from the Higher Education Funding Council coming in for earmarked
purposesso that is less into general fundingif I
look at what is going into supporting general teaching, which
is the question, I guess the amount has gone down.
359. In terms of the sector.
(Baroness Warwick of Undercliffe) The overall amount
of public support per student has remained stable. It has not
gone down as it had done in previous years, but it has not increased.
360. You are saying that here is a government
that wants to go from 40 per cent to 50 per cent participation,
and to do that, you have to have funding; you cannot do it without.
(Professor Green) We cannot fund at the margin.
(Professor Floud) We will be publishing it shortly,
but we have just conducted a research project that shows that
the additional costs of supporting widening participation of students
is probably of the order of 35 per cent, which is significantly
higher even than your Committee recommended when it last discussed
that particular subject. There is increasing evidence that it
is mainly retaining studentsnot recruiting, although recruiting
is more expensivefrom lower social classes. I draw your
attention also to a very interesting paper that has just been
published by the Council for Industry and Higher Education, which
looks at the relationship between employment and success between
university experience and employment and social class. Overcoming
those kinds of barriers is and will be very, very expensive, and
that is the basis for much of our submission.
Chairman: Thank you very much. We could have
gone on for another hour, I am sure, and gone into research and
other aspects, but we wanted to focus our questions pretty specifically
on government discussions, so thank you very much for your evidence.
We had noted the 35 per cent in a speech by Baroness Warwick in